Lexington Buys Out Inland's Share of Net Lease JV

(Save the date: RealShare New York comes to the Grand Hyatt, New York, NY, October 9.)

NEW YORK CITY-Locally based Lexington Realty Trust said late Thursday afternoon it has entered an agreement to buy out Inland American’s interest in a net lease joint venture in a deal valued at $480 million. The JV, Net Lease Strategic Assets Fund LP, was formed in 2007 by LXP and Inland American (Net Lease) Sub LLC.

In a statement, LXP says the deal expands its asset base and consolidates its ownership of a 98.7% leased portfolio that it had owned and/or managed since before NLS was formed. "This transaction is highly beneficial to Lexington,” T. Wilson Eglin, the REIT’s CEO, says in a statement. “This portfolio of 41 office, industrial and specialty assets in 23 states is leased to a high-quality roster of tenants including Northrop Grumman, Siemens, Owens Corning and Honeywell. These are assets we have owned and/or managed since before NLS was formed, we know very well and we are acquiring at what we believe is an attractive price.”

He adds that the company believes it can create “significant” value for shareholders “by extending lease terms, recycling capital through asset sales and refinancing the underlying debt over time."

The NLS JV currently owns 26 office properties, 13 industrial assets and two specialty properties for a total of 5.8 million square feet, along with a 40% tenant-in-common interest in an office property. Annual net operating income of the portfolio was approximately $49.6 million as of June 30, representing a 10.3% capitalization rate on the transaction value, according to LXP. As of June 30, 2012, the portfolio was encumbered by $259 million of consolidated debt.

The NLS deal is also resulting in an upward adjustment of LXP’s funds from operations guidance for 2012. Previously set at 93 to 96 cents per common share, it is now 95 to 98 cents. Further, the company boosted its quarterly dividend from $0.125 to $0.15 per common share unit, a 20% increase.

Eglin says the boost in guidance and dividend reflect “not only the accretion from the acquisition, but also the cumulative impact of reinvesting our excess cash flow to reduce debt, recycling our capital into higher yielding new investment opportunities, refinancing our maturing debts at substantially lower rates and raising portfolio occupancy from 92.0% to 97.7% over the past few years. Even with this 20% dividend increase, we believe our payout ratio in relation to company FFO, as adjusted, remains conservative."